Yoste Roofing uses job-order costing for each of its installations and repairs.

ID: 2492635 • Letter: Y

Question

Yoste Roofing uses job-order costing for each of its installations and repairs. Overhead is allocated based on the cost of roofer’s wages. At the start of the year, annual roofer were estimated to be $575,000 based on 34,000 labor hours, and company overhead was estimated to be $630,000.
a.Briefly state why the use of a predetermined overhead rate would be preferred to assigning actual overhead to repair jobs. .
b.If a roofing job required shingles costing $4,000 and roofer time costing $6,800, how much will be the total cost of the job?

Explanation / Answer

The overhead costs are not directly to any particular job or product which makes it difficult to trace the overhead incurred for a job. Use of predetermined overhead rate involves allocation of overhead to a job on the basis of a resonable factor or criteria such as direct labor hours, direct labor cost, machine hours, etc.

Use of predetermined overhead is also preferred because overhead can be allocated as and when a job is completed which can help in ascertaining cost of job at appropriate time rather than to wait for year end for actual costs.

Annual roofer's wages = $575,000

Annual overhead = $630,000

Predetermined overhead rate based on roofer' wages = Estimated overhead/Estimated roofer's wages = $630,000/$575,000 = 1.10 times of roofer's wages

Cost of shingles

$ 4,000

Roofer's wages

$ 6,800

Overhead allocated ($6,800 * 1.10)

$ 7,480

Total cost of Job

$ 18,280